David A. Miller, Game Theoristhttp://www-personal.umich.edu/~econdm/index.htmlResearch & Newsend9miller@ucsd.eduCopyright David A. Miller2015-07-07T18:36:29-04:00hourly12000-01-01T12:00+00:00Tue, 7 Jul 2015 18:40:10 -0400Ostracism and forgivenessd9miller@ucsd.eduWorking papers2015-07-07T18:36:29-04:00http://www-personal.umich.edu/~econdm/files/AliMiller-Ostracism.html#unique-entry-id-21http://www-personal.umich.edu/~econdm/files/AliMiller-Ostracism.html#unique-entry-id-21With S. Nageeb AliAbstract: Many communities rely upon ostracism to enforce cooperation: if an individual shirks in one relationship, her innocent neighbors share information about her guilt in order to shun her, while continuing to cooperate among themselves. However, a strategic victim may herself prefer to shirk, rather than report others' deviations truthfully. If guilty players are to be permanently ostracized, then such deviations are so tempting that cooperation in any relationship is bounded by what the partners could obtain through bilateral enforcement. We show that ostracism can improve upon bilateral enforcement if it is tempered by forgiveness, through which guilty players are eventually readmitted to cooperative society.

]]>Moving to Michigand9miller@ucsd.eduNews2013-02-06T18:06:18-05:00http://www-personal.umich.edu/~econdm/files/Michigan.html#unique-entry-id-20http://www-personal.umich.edu/~econdm/files/Michigan.html#unique-entry-id-20Economics Department at the University of Michigan, effective July 1, 2013. I will miss my San Diego colleagues very much, but I’m excited to work with the faculty and students at Michigan.]]>Visiting Microsoft Research, 2012-2013d9miller@ucsd.eduNews2012-07-10T17:16:50-04:00http://www-personal.umich.edu/~econdm/files/021d0379ac2a47d53a693b187c3272e5-19.html#unique-entry-id-19http://www-personal.umich.edu/~econdm/files/021d0379ac2a47d53a693b187c3272e5-19.html#unique-entry-id-19Microsoft Research New England. I’m looking forward to lots of productive interactions with the permanent researchers, postdocs, and other visitors!]]>A contract-theoretic model of conservation agreementsd9miller@ucsd.eduWorking papers2011-09-11T13:07:10-04:00http://www-personal.umich.edu/~econdm/files/GGMNSW-ConservationAgreements.html#unique-entry-id-16http://www-personal.umich.edu/~econdm/files/GGMNSW-ConservationAgreements.html#unique-entry-id-16With Heidi Gjertsen, Theodore Groves, Eduard Niesten, Dale Squires, and Joel WatsonAbstract: We model conservation agreements using contractual equilibrium, a concept introduced by Miller and Watson (2010) to model dynamic relationships with renegotiation. The setting takes the form of a repeated principal-agent problem, where the principal must pay to observe a noisy signal of the agent's effort. Lacking a strong external enforcement system, the parties rely on self-enforcement for their relational contract. We characterize equilibrium play (including how punishments and rewards are structured) and we show how the parties' relative bargaining powers affect their ability to sustain cooperation over time. We argue that the model captures important features of real conservation agreements and reveals the ingredients required for successful agreements.

Abstract: We study optimal contracting in team settings where agents have many opportunities to shirk, task-level monitoring is needed to provide useful incentives, and it is difficult to write individual performance into formal contracts. Incentives are provided informally, using wasteful sanctions like guilt and shame, or slowed promotion. These features give rise to optimal contracts with underperformance, forgiving sanctioning schemes, and endogenous supervision structures. Agents optimally take on more assigned tasks than they intend to complete, leading to the concentration of supervisory responsibility in the hands of one or two agents.

]]>Enforcing cooperation in networked societiesd9miller@ucsd.eduWorking papers2013-01-25T11:18:09-05:00http://www-personal.umich.edu/~econdm/files/AliMiller-Cooperation.html#unique-entry-id-7http://www-personal.umich.edu/~econdm/files/AliMiller-Cooperation.html#unique-entry-id-7With S. Nageeb AliAbstract: Which social norms and networks maximize cooperation in bilateral relationships? We study a network of players in which each link is a repeated bilateral partnership with two-sided moral hazard. The obstacle to community enforcement is that each player observes the behavior of her partners in their partnerships with her, but not how they behave in other partnerships. We introduce a new metric for the rate at which information diffuses in a network, which we call viscosity, and show that it provides an operational measure for how conducive a network is to cooperation. We prove that clique networks have the lowest viscosity and that the optimal equilibrium of the clique generates more cooperation and higher average utility than any other equilibrium of any other network. This result offers a strategic foundation for the perspective that tightly knit groups foster the most cooperation. We apply this framework to analyze favor exchange arrangements, decentralized trade in networked markets, and social collateral.

]]>A theory of disagreement in repeated games with bargainingd9miller@ucsd.eduPublications2013-11-13T16:08:08-05:00http://www-personal.umich.edu/~econdm/files/MillerWatson-Disagreement.html#unique-entry-id-6http://www-personal.umich.edu/~econdm/files/MillerWatson-Disagreement.html#unique-entry-id-6With Joel Watson

Abstract: This paper proposes a new approach to equilibrium selection in repeated games with transfers, supposing that in each period the players bargain over how to play. Although the bargaining phase is cheap talk (following a generalized alternating-offer protocol), sharp predictions arise from three axioms. Two axioms allow the players to meaningfully discuss whether to deviate from their plan; the third embodies a “theory of disagreement”—that play under disagreement should not vary with the manner in which bargaining broke down. Equilibria that satisfy these axioms exist for all discount factors and are simple to construct; all equilibria generate the same welfare. Optimal play under agreement generally requires suboptimal play under disagreement. Whether patient players attain efficiency depends on both the stage game and the bargaining protocol. The theory extends naturally to games with imperfect public monitoring and heterogeneous discount factors, and yields new insights into classic relational contracting questions.

]]>Robust collusion with private informationd9miller@ucsd.eduPublications2012-04-01T11:47:31-04:00http://www-personal.umich.edu/~econdm/files/Miller-EPPPE.html#unique-entry-id-4http://www-personal.umich.edu/~econdm/files/Miller-EPPPE.html#unique-entry-id-4Published in The Review of Economic Studies, 79(2):778–811, April 2012.
Abstract: The game-theoretic literature on collusion has been hard pressed to explain why a cartel should engage in price wars, without resorting to either impatience, symmetry restrictions, inability to communicate, or failure to optimize. This paper introduces a new explanation that relies on none of these assumptions: if the cartel's member firms have private information about their costs, price wars can be optimal in the face of complexity. Specifically, equilibria that are robust to payoff-irrelevant disruptions of the information environment generically cannot attain or approximate efficiency. An optimal robust equilibrium must allocate market shares inefficiently, and may call for price wars under certain conditions. For a two-firm cartel, cost interdependence is a sufficient condition for price wars to arise in an optimal robust equilibrium. That optimal equilibria are inefficient generically applies not only to collusion games, but also to the entire separable payoff environment (Chung & Ely 2006)—a class that includes most typical economic models.